EIGHT High
Frequency Treasury Trading Hedge Funds – (In 2015 BrokerTec published a list of
interdealer market Treasury trading volumes showing 8 of top ten traders by
volume were hedge funds, not dealers. This represented up to 70% of Treasuries
traded. In a market that can have daily
volumes of 1 Trillion when incorporating cash and futures markets – dictated by
high volume traders that manipulate prices –– yet somehow the world believes
yields reflect a consensus outlook for growth and inflation instead of the will
of 8 traders – is no different from the Hunt Brothers cornering the silver
market. This ended catastrophically for
the Hunt brothers and the silver market. High volume strategies by a few are currently
cornering the Treasury market and therefor the global bond market. As the strong economic fundamentals make
current low yield levels look comical and cash rates rise high enough to
encourage rotation away from bonds, this manipulation will collapse and along with
it bond prices.)

SIX Central Banks
Pursued QE (US, UK, Switzerland, EU, Japan and China all pursued quantitative easing
programs in order to monetize debt, competitively depreciate their currency for
trade advantages and fund at subsidized rates ever expanding government
deficits that normally lead to soaring interest rates)

FIVE Fed Funds
rate hikes (at this pace there will be five more years of hikes and one heck of
a bubble to burst –if the monetary policy insanity lasts five more years, the
global financial and economic system will be imperiled)

FOUR Trillion
Bonds on the Fed’s Balance Sheet (was only appx. 700 billion in 2008, now 4.4
trillion!)

THREE Egg Nogs
for Big Ben (Academics love to party and Fed Chairman Bernanke, as the father
of excessive and highly impaired QE policies, had all the Fed members over-imbibing)

TWO Dissenting
Doves – (Fed Presidents Evans – Chicago and Kashkari – Minneapolis both want to
revel into the new year and voted not to raise rates and continue to normalize
Fed policy at the recent December 17 Federal Reserve meeting. It was rumored
they were overheard calling Yellen a Grinch!)

AND A Powell In the
Fed’s chair seat – (Jerome Powell will replace Fed Chair Yellen February 3,
2018. A prior article I wrote, will Trump dance or be a dunce is looking like
he has his dancing shoes on. Let’s stay in the holiday spirit and dance the
night away with a new Fed Chairman that will stick with the status quo and keep
the party going! Chairman Greenspan decided
to keep the party going at all costs and let the music stop on someone else’s
watch. This practice has been followed
by Chairman Bernenke and Chairman Yellen.
Chairman Powell now seems prepared to practice what everyone else
preached. Let’s do whatever it takes, regardless of future economic costs (and
these costs will be catastrophic) and let this monetary policy experiment end
with a thundering boom on the next person’s watch!

by Michael Carino, Greenwich Endeavors, 12/23/17

Michael Carino is the CEO of Greenwich Endeavors and has
been a fund manager and owner for more than 20 years. He has positions that benefit from a
normalized bond market and higher yields.